Week ended Dec 5, 2025: stocks lean into economic data, bonds less so

I feel a bit like a classic fraidy-cat because I am simply unable to find joy in one of this week’s #FT articles (above), even though it sounds so very positive as we look towards 2026. Assuming U.S. stocks finish the year around where they are now, can Street analysts really forecast another year of double digit returns, which would be 3rd consecutive year, not to mention six out of the last seven? It sounds too good to be true, but more on that later.

The U.S. jobs market

Most attention Stateside continues to revolve around the state of the jobs market. Advocates pushing for a rate cut by the Fed latched onto weak November ADP data released mid-week which indicated that private sector companies shed 32,000 jobs last month. However, even as companies shed private sector jobs, wages still rose an impressive 4.4% YoY, clearly illustrating that the “last mile” of inflation will be tough to snuff out. The ADP report was followed by the release of weekly first time jobless claims report Thursday morning. First time jobless claims fell to a three-year low – lower than anticipated – which triggered a sell-off in the US Treasury bond market as yields headed higher. Yes, it’s true – yields can rise even though a policy rate reduction at this week’s FOMC meeting is already priced in. Herein lies the dilemma, as the increasingly-politicised Fed – stoked by risk-on investors – pushes for monetary policy easing even though inflation is proving hard to completely vanquish.

Personal Consumption Expenditures (PCE)

Speaking of inflation, PCE data released Friday morning from way back in September (does that even matter now?) suggested that inflation was slightly improved, with both headline and core PCE for the month coming in at 2.8% YoY (meaning Sept 2025 vs Sept 2024). This is of course still above the Fed’s 2% target, but the September read was favourable enough to almost certainly validate a reduction in the Fed Funds rate at this week’s FOMC meeting. The slightly-better-than-expected inflation data from September – even though it was very dated – stimulated a leg-up in U.S. stocks to end the week. However, it was negative for US Treasury yields as sticky long-term inflation expectations – along with a host of other issues – continues to be problematic for bond investors. Do you want to know how the Fed can ease monetary policy and yet and bond yields increase? Read “US Treasury yields: what’s next?” which I wrote mid-week.

Other U.S. economic data

As far as other economic data, ISM data for November continued recent themes, with ISM services data suggesting ongoing growth / expansion (beating expectations), and ISM manufacturing data showing a slight erosion in manufacturing activity vis-à-vis October. You can read what you want into this data with its ambiguous signals, although one must admire the diversity and ongoing resiliency of the mighty U.S. economy. Perhaps one of the most important things to keep an eye on is consumer spending during the all-important Christmas period, since the U.S. economy is dependent on Americans continuing to spend money like drunken sailors. And this might just happen, with the latest consumer confidence reading showing modest improvement, along with slightly lower comsumer inflation expectations. This data simply added more fuel to the proverbial fire as risk assets rallied to end the week.

The Fed and other upcoming central bank meetings

The focus for investors during the coming two weeks will be a series of central bank meetings, kicking off with the FOMC next week (monetary decision Wednesday).

In summary, the Fed and the Bank of England are expected to reduce their policy rates 25bps, the ECB will likely do nothing, and the Bank of Japan looks set to raise its policy rate by 25bpa. Should these changes come to pass, they should help stabilise the Yen and add pressure on the greenback. Below is an updated summary of key central bank meetings over the next two weeks, so that can keep an eye on things.

• FOMC (Fed) meeting, Dec 9th-10th: rate decision on the 10th; the FOMC will also release a revised Summary of Economic Projections following this meeting. According to the CME FedWatch Tool, the Fed is expected with 87% probability to reduce the Federal Funds rate by 25bps at this meeting.

• Bank of England Monetary Policy Committee (MPC) meeting, Dec 18th; the BoE is expected to reduce its policy rate (Bank Rate) by 25bps. The recent U.K. budget with its scant pro-growth initiatives appears to have sealed this outcome.

• European Central Bank (ECB), Dec 17th-18th (decision on the 18th); expected to hold

• Bank of Japan, Dec 18th-19th (decision on 19th); odds now favour the BoJ increasing its policy rate by 25bps (noting that the BoJ is tightening while other central banks are loosening monetary policy). The probability of a rate increase appears to be around 80% based on the reaction of investors in Japanese Government Bonds (JGBs), where the 10-year yield reached an 18-year high on Friday.

If you are curious as to how the pending FOMC decision will affect yields, you have to look no further than what happened in the second half of this week. Mixed employment data suggests that the U.S. economy is only slightly weakening, while inflation remains elevated and consumer expectations regarding inflation remain well above the 2% Fed target for several years. Yields rose this week across the curve in spite of the likely reduction in the Fed Funds rate at next week’s FOMC meeting. For anyone in the Trump Administration and for the “x/Reddit know-it-all” pundits to say confidently that monetary policy is overly restrictive shows how poor their knowledge of economics really is. In the bond market, there is truth!

Other FOMC output

Lastly, keep in mind that the Fed will also release its revised Summary of Economic Projections along with its monetary policy decision on Wednesday. This will of course be telling, but I suspect most influential will be what Chairman Powell says at the post-FOMC press conference. I am reasonably confident that he will be more cautious than investors expect as far as discussing the early 2026 path forward, which might cause risk investors (meaning stock investors) to throw their toys out of the pram. And God forbid if the FOMC doesn’t reduce the Fed Funds rate on Wednesday as expected….

MARKETS LAST WEEK

Question: Does an investor need to be particularly smart to make money these days?

Answer: No, an investor simply needs to be long risk assets just about anywhere, certainly as far as stocks (and with the exception recently of Bitcoin). This has been a run mostly about portfolio asset allocation and sector selection rather than individual names.

Well the old man in me thinks that this run simply has to end sometime. Or does it? It’s hard to say these days, but clearly – as you saw at the beginning of this update according to the FT article – the Street expects the party to carry on in 2026. I hope these (clearly biased) analysts prove to be correct!

Last week was another feather in the cap of 2025 performance as the year barrels towards its close, with most global equity markets (excluding the FTSE 100) better bid by the end of the week. Gold and the U.S. Dollar were slightly weaker, and the Yen strengthened. Cryptocurrencies continued to be under pressure, with Bitcoin sliding further this week. US Treasuries drifted lower much of the week, dragging corporate bonds down marginally too although credit spreads actually improved both in investment grade and high yield, in line with equity market sentiment.

As an investor I would be thrilled if things trended sideways till year end, which would cap off the third consecutive year of double-digit stock market gains. In spite of last week’s increase in yields, even US Treasury investors have something to celebrate as we are well off the beginning-of-the-year yield highs, generating decent gains YtD. Corporate credit spreads have remained eye-watering tight even as private credit concerns – like A.I. overspend – have faded into the background. Let’s not celebrate yet, but investors are within spitting distance of another very good year.

Below are updated tables for the week ended December 5, 2025.

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